Is now the time to jump on the property ladder?

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• Published: 16 Jun 2010 in Money and Mortgages

By Stephen Jones

It’s been a confusing few months in the housing market. With the recovery that followed the crash in 2007-8 now appearing to be stalling, there have been only small monthly fluctuations in values since the start of this year.

Halifax is among a number of industry voices predicting that house prices are likely to remain flat throughout 2010 – others, however, think even this view is too optimistic.

Either result would be warmly welcomed by first-time buyers who have seen them soar by more than 120 per cent over the last decade. But are the predictions correct, and what factors are at play?

The Budget

With the new coalition government’s first Budget approaching fast, there is much speculation about potential changes to capital gains tax (CGT). While Chancellor George Osborne appears likely to announce moves to bring the levy closer to income tax levels in his statement on 22 June, we don’t know when the change would come into force.

The timing of the rise could well be significant for the property market. While the tax is only charged on second homes or buy-to-let properties, some commentators argue that an immediate increase could potentially see investors pull properties they were planning to sell; pushing prices upward by further restricting the supply of homes available.

On the other hand, a delay of up to a year may cause investors to rush to sell before the rise hits, creating a ‘flood’ that could contribute to a significant fall in home values.

A different view

However, Paul Holmes, CEO at Firstrung – a mortgage broker aimed at first-time buyers - doubts that the changes will really have the impact that is being suggested; particularly as HMRC figures show that only 270,000 people in the country paid capital gains tax at all during the 2006-7 tax year. Instead, he predicts that the rise in CGT may “prick the bubble” of casual landlords buying in opportunistically; meaning some good news at least for those looking to own their first home.

On the subject of prices, Holmes believes that more pain is on the way for existing homeowners.

“This Con-Dem government is going to introduce an awful lot of short, sharp, shock measures in order to get the medicine into the economy as quickly as they can,” he says. As a result, he expects to see a steady fall in prices of around 20 to 25 per cent over the next two years.

First time buyers: What to do?

That may be a far more pessimistic prediction than most, but in truth it’s tough for anyone to accurately call what is going to happen in a market where so many factors are at play.

Let us not forget that the economic recovery remains incredibly fragile, and with unemployment expected to continue to grow following substantial public sector cuts, it’s not just CGT that estate agents will be keeping a worried eye on in the Chancellor’s Budget statement.

So what does a potential first-time buyer do now? Well, whether prices fall or not, the rules remain the same; look for bargains and keep your head (when all about you are losing theirs).

Hitting the auction room

There are several ways to do this, none of which are easy. One option often highlighted is hunting around at property auctions. While this is time consuming, often frustrating and almost always stressful, finding an unloved home and adding your own ‘sweat equity’ can be hugely rewarding, and not just in the moral sense.

If you do choose to go to auction, it’s important to stick by a few golden rules:

• Don’t buy at your first auction. Go along to a few and get a feel for what to expect – this should mean it’s less of a shock when you find yourself bidding.
• Make sure you know every detail about any home you’re looking to purchase. You should be able to view any homes put up for auction in the few weeks before they go under the hammer. Don’t feel embarrassed to ask some awkward questions, and don’t buy unless you’re 100 per cent sure that you’ll be able to afford any work that will need doing.
• Go into auction with a very clear limit as to what you can spend. It’s an exhilarating atmosphere once bidding gets underway, but it’s important not to get carried away. Remember; every home has its price.

For more help, FindaProperty.com has this useful guide to buying at auction.

Stick by the old mantras

If this sort of risk is not for you, then it’s worth sticking by old mantras such as looking for the worst home in the best address.

Otherwise, you could do worse than just sitting it out for a while and taking the time to build up a decent deposit – especially necessary given banks’ continued unwillingness to lend. By then, you might even find that owning your first home is much more attainable than you could have thought.

More tips on readying yourself for the big purchase are available in our comprehensive first-time buyers’ guide.